Types of Capital Asset - Income Tax - Ready Reckoner - Income Tax

TYPES OF CAPITAL ASSET Capital assets are of two types: Short term capital asset Long term capital asset Short term capital asset [ Sec 2(42A] ) means a capital asset held by an assessee for not more than [ 36 months 24 month ( w.e.f. 23-07-2024 Substituted vide Finance (No. 2) Act, 2024 ] immediately prior to its date of transfer. However, A. As per the first proviso in the following cases, an asset held for not more than [ 12 months 24 month ( w.e.f. 23-07-2024 Substituted vide Finance (No. 2) Act, 2024 ] , is treated as short term capital asset (i) a security [ (other than a unit) ( w.e.f. 23-07-2024 Omitted vide Finance (No. 2) Act, 2024 ] listed in a recognised stock exchange in India; (ii) a unit of an equity oriented fund; Equity oriented fund means a fund set up under a scheme of a mutual fund specified u/s 10(23D) or under a scheme of an insurance company comprising unit linked insurance policies to which exemption u/s 10(10D) of the said section does not apply on account of the applicability of the fourth and fifth proviso thereof and,- (i) in a case where the fund invests in the units of another fund which is traded on a recognised stock exchange,- (A) a minimum of 90% of the total proceeds of such fund is invested in the units of such other fund; and (B) such other fund also invests a minimum of 90% of its total proceeds in the equity shares of domestic companies listed on a recognised stock exchange; and (ii) in any other case, a minimum of 65% of the total proceeds of such fund is invested in the equity shares of domestic companies listed on a recognised stock exchange. The percentage of equity shareholding or unit held in respect of the fund, as the case may be, shall be computed with reference to the annual average of the monthly averages of the opening and closing figures. In case of a scheme of an insurance company comprising unit linked insurance policies to which exemption u/s 10(10D) does not apply on account of the applicability of the fourth and fifth provisos of section 10(10D), the minimum requirement of 90% or 65%, as the case may be, is required to be satisfied throughout the term of such insurance policy. [ clause (a) of Explanation to Section 112A ] (iii) zero coupon bonds. ( a ) issued by any infrastructure capital company or infrastructure capital fund or infrastructure debt fund or public sector company or scheduled bank on or after the 1st day of June, 2005; ( b ) in respect of which no payment and benefit is received or receivable before maturity or redemption from infrastructure capital company or infrastructure capital fund or infrastructure debt fund or public sector company or scheduled bank; and ( c ) which the Central Government may, by notification in the Official Gazette, specify in this behalf. [ Section 2(48) ] B. Unlisted shares of a company shall be treated as short term capital asset if these are held for not more than 24 months ( instead of 36 months) immediately preceding the date of transfer. (Third proviso to sec 2(42A) ) [ w.e.f. 23-07-2024 Omitted vide Finance (No. 2) Act, 2024 ] C . Immovable property being Land or Building or both to be considered as short term if held for a period not more 24 months. Hence, long term if held for a period exceeding 24 months instead of 36 months. (Third proviso to section 2(42A) ) [ w.e.f. 23-07-2024 Omitted vide Finance (No. 2) Act, 2024 ] The capital gains arising from transfer of units of a specified fund acquired on or after 01.04.2023 and market linked debenture would always be deemed as arising from transfer from transfer of short capital assets irrespective of the period of holding of such assets. This is provided section 50AA . Long term capital asset : An asset other than short term capital asset is regarded as a long term capital asset. [ Section 2(29AA) ] Thus, a capital assets held by an assessee for more than 24 month immediately preceding the date of its transfer is a long-term capital asset. Applicability of tax on capital gain in the hands of unit holder where the term of the units of mutual fund under the fixed maturity plans has been extended [ Circular No. 06/2015 dated 09.04.2015 ] FMPs are closed ended funds having a fixed maturity date wherein the duration of investment is decided upfront. prior to the amendment made by the Finance (No.2) Act, 2014 units of a mutual fund under the Fixed Maturity Plans (FMPs) held for a period of more than twelve months qualified as long term capital asset. The amendment in sub-section (42A) of section 2 of the Act by the Finance (No.2) Act, 2014 required the period of holding in case of units of mutual fund [ other than an equity oriented fund] to be more than 36 months to qualify as long term capital gain. As a result, gains arising out of any investment in the units of FMPs made earlier and sold/redeemed after 10.07.2014 would be taxed as short term capital gains if the unit was held for a period of 36 months or less. to enable the FMPs to qualify as long term capital asset, some Asset Management Companies (AMCs) administering mutual funds have offered extension of the duration of the FMPs to a date beyond 36 months from the date of the original investment by providing to the investor an option of roll-over of FMPs in accordance with the provisions or regulation 33(4) of the SEBI (Mutual Funds) Regulation 1996.